Welcome to another edition of Fridays with
Fred, my name is Fred Sed. I got a call from a seller of mine that’s looking to list and
sell their home with us and he asked me. Fred, do I have to pay Capital Gains or income taxes
on whatever my equity is? This is the answer I have for you. For him, it was a little bit
different. But for you, it depends on what type of property you own. Option 1. If you
own an investment property, you’re always going to have the liability of paying income
tax or Capital Gain on whatever the equity might be. Because it’s an investment property.
No matter if you own it for 6 months or 10 years, you’re going to pay Capital Gains.
Now, whether or not you’re going to pay it, or how much you owe on it, that depends on
the equity, the net equity. Meaning after commissions that you pay for agents to sell
the property, repairs, appreciation of value, or whatever it might be your CPA or accountant
knows and they’ll tell you what taxes you actually have to pay on that net equity. But
you are subject to and liable for Capital Gains on any investment property in California
no matter how long you’ve owned the home. Remember that. Number 2, if its the principle
residence, this is the breakdown for that. If you own the principle residence for less
than two years and you sell within two years of owning it, for example. You bought it a
year ago and you’re selling it today and you close tomorrow whatever it might be. You’ll
also be subject to Capital Gains and what that amount will be depends on all the factors
I talked about before in regards to what your equity is, what your cost is, acquisition,
closing cost, etc. That’s for your accountant and CPA to figure out. The second aspect of
selling your principle residence and having to pay taxes or not on the equity is the following.
If you own the property for more than 2 years, this is the cool part. In California, as long
as you’re a single individual or married it’s broken up into those categories. If you’re
single, you’re allowed up to $250,000 of tax free equity. So if you’ve only made $150,000
in equity of 4 years of owning it, you don’t pay a dime in taxes or capital gains. But
if you break that quarter million dollar mark as a single individual, you will be subject
to capital gains of whatever that amount is above a quarter million. If you’re married
in California, you’re allowed up to $500,000 in tax free equity. Anything beyond that,
you’ll be subject to capital gains. Either way, consult or talk to your CPA or your accountant
in regards to “would I owe anything”, “do I owe anything” prior to selling it. That’s
some of the vendors we have access to that we give our sellers if they have any questions.
If you have any questions about your property in general, contact me 7 days a week at (949)272-0125.
For any questions regarding this topic, videos, to look at properties. View our highly reviewed
website at www.BestOCproperties.com and tune in next week for another amazing edition of
Fridays with Fred. Why? Because that’s what Fred said.